The US military said it expected to be in full control of the town in days following its largest counter-insurgency operation since a massive offensive against the rebel-held town of Fallujah, just west of Baghdad, last November.

An Internet statement in the name of an Al-Qaeda-linked group threatened to retaliate against US forces with chemical weapons if the operation did not end within 24 hours but its authenticity could not be verified.

The internet statement posted in the name of the Jaish al-Taefa al-Mansura, or Army of the Victorious Community, warned of reprisal attacks using "non-conventional and chemical weapons ... developed by the mujahedeen... unless the armed onslaught against the city of Tal Afar stops within 24 hours."

The Iraqi Red Crescent said up to 7,000 families were fleeing the fighting in Tal Afar, a town between the main northern city of Mosul and the Syrian border that US commanders say has become a major staging post for foreign fighters.

The US military said more than 141 "terrorists" had been killed in the town since late August and another 211 captured, along with weapons caches.

"By the 15th of September we should be done. The enemy will be defeated," said US commander Major Robert Molinari.

"There's no areas they are controlling, they are either on the run or dead," he said, adding that rebels had been isolated in the southeastern Saray district of the town.

Prime Minister Ibrahim Jaafari said Friday that he had given the go-ahead for the assault by some 4,000 US and around 6,000 Iraqi troops after days of deadly clashes failed to dislodge the rebels.

In the meantime tensions between Sunnis and Shiites have been running high nationwide over the drafting of a new constitution which is due to be put to a national referendum on October 15 ahead of elections in December, the AP reports.